Luxury yacht buyers in Texas get big tax break

Luxury yacht buyers in Texas are getting a massive tax break on future purchases thanks to a bill Gov. Greg Abbott allowed to become law on Friday without signing it.

Starting in September, the amount of sales tax charged for luxury yachts as large as 115 feet will be capped at $18,750. For the buyer of a $3 million yacht, that tax break would be worth almost $228,000.

Supporters of the legislation don’t deny luxury boat owners will benefit, but they say the real purpose of the legislation is to revive the state’s marine industry. Since Florida capped its sales taxes on yachts at $18,000 in 2010, Texas has seen its share of the market dwindle, said state Rep. Ryan Guillen, a Rio Grande City Democrat who authored House Bill 4032.

When those boats are purchased in Florida, they stay docked there. The result is Florida gets the added revenue from marinas, gas and diesel sales and other services the vessels need, instead of Texas.

Florida isn’t alone in cutting taxes for yacht owners. Alabama also caps sales taxes for boats, but at $37,500. Some states, including Delaware and Rhode Island, collect no sales tax on boats over $1 million, according to the Texas Marine Industry Coalition, which is advocating for the changes.

U.S. Coast Guard data shows the number of total boat registrations in Texas dropped from 2016 to 2017 by about 10,000 registrations to 565,000. That is sixth most in the nation. Florida has the most registrations with 918,000.

Guillen said wealthy boat buyers are going to get their tax break anyhow by going to other states. He said Texas needs to provide a similar break to give buyers incentives to purchase in Texas and create jobs here.

Currently, boats in Texas are subject to a 6.25 percent state sales tax plus local sales taxes which add up to another 2 percent. An 8.25 percent, sales tax on a $3 million purchase amounts to $247,500 in sales taxes. Under the new law, the tax bill would drop to $18,750.

Budget analysts say the tax break would cost Texas $2.3 million in revenue over the next two years. Dick Lavine, a senior tax analyst with the Center for Public Policy Priorities, an independent research group based in Austin, has called the tax break another unnecessary loss of revenue for Texas.

“It’s not the biggest tax break, but it benefits a very small number of very wealthy people and the folks that sell things to them,” Lavine said in May when the Texas Senate passed the bill on a 25 to 6 vote.

The bill nearly failed in the Texas House in the closing days of the Legislature. Three days before the end of the session, the House voted the bill down, 74 to 68. But then three hours later, the House reconsidered that vote and the tax break for yacht buyers passed 82 to 55.

Abbott did not sign the bill into law on Friday. Instead, he allowed it to become law without his signature.